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Tax Credits for Low-Income Housing.

Tax Credits For Low-Income Housing

In real estate, tax deductions and tax credits have always been the favored form of federal subsidy for the non-poor, as is evident from the home mortgage interest deduction, the depreciation deduction that fueled the commercial real estate market for many years, and the historic tax credit that helped save so many historic buildings. Now the working poor, instead of receiving rental subsidies, can benefit from a tax credit; the low-income housing tax credit (LIHTC) is the major subsidy for multifamily housing. The LIHTC, however, suffers from two significant disadvantages: it has to be reauthorized each year and, given the congressional concern over budget, it is never assured a stable future. It is also exceptionally complicated, particularly in the ways in which it may be used with other subsidies.

Fortunately, the complications are much easier to understand when one reads the sixth edition of the "explanation, analysis and guide" to the LIHTC by Joseph Guggenheim. The explanation takes 121 pages, but it is as direct and clear as one could hope for. Owners, developers, their accountants and attorneys should find this book particularly useful when evaluating and using the tax credits.

A section of this book entitled, "Will the Tax Credit Work?" presents pro forma budgets at varying costs per unit, first using conventional financing and then tax-exempt financing. Each budget shows the annual tax credit for which the apartment unit would be eligible and then portrays, at 50 percent and 60 percent of selected-area median incomes, what additional subsidy, if any, would be necessary. Those who have not tried to use the LIHTC may not realize that the credit is seldom high enough to subsidize the rents sufficiently to cover the operating costs and the mortgage payments. The owner (profit-making or non-profit) usually has to obtain a grant, or a loan at little or no interest, from a city, county or state or even a charity, in addition to the tax credits, to "make the numbers work" at rent levels low-income families can afford. In some areas, particularly where the median income is low and costs of rehabilitation or new construction are high, the LIHTC will not be feasible.

Although Guggenheim points out that syndication costs and the timing of investor payments vary considerably, the book would be enhanced by further information on the factors influencing the amount of money the owner/developer receives from the sale of tax credits to a syndicator or directly to a corporation. He lists 38 active syndicators but provides only one example of the amount received, after discounting future payments and syndicator fees.

In addition to the text, Tax Credits for Low-Income Housing has 160 pages of appendices, including the tax credits allowed per state, the maximum incomes and rents permitted, the IRS regulations, special information for use of the credit with Farmers Home mortgages, the tax form and more.

The sixth edition is current through April 1991. A looseleaf edition with quarterly updates is also available for those who need to know the changes in law or regulations immediately. The book, or the looseleaf service, may be ordered by calling Simon Publications at 301/320-2771.
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Stevenson, Eric
Publication:Mortgage Banking
Article Type:Book Review
Date:Oct 1, 1991
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